Hindsight

So, Mr Putin’s insistence in February that his red army and teenage conscripts were engaged in nothing more than military drills on the Ukrainian border turned out to be nothing more than lies and utter b*****ks. Early March saw the invasion on Ukraine by Russian troops begin in earnest. Did we really believe that 130,000 Russian troops on the Ukrainian border was a training exercise?

Back in early February Yorkshire feed wheat was trading at £225 / tonne ex farm. On the first day of March we bought Yorkshire feed wheat at £260/ tonne ex farm for April collection and thought it was an incredible price. But, by Monday 7^th that wheat was worth £300/ tonne! The daily trading ranges were moving violently on the London Futures screen both up and down and if you were a gambler, it would have been possible to lose your shirt several times over, or indeed pocket a very tidy profit.

Little business was being conducted at consumer level, and most of the grain purchased on farm was either being sold by those in the trade with futures accounts or used to offset earlier mill sales and futures-based purchase/supply agreements.  Some of this business presents those elements of the grain trade selling futures to hedge out on farm purchases with a further problem. The rapid rise of the May futures market meant that business conducted like this on day one, is subject to huge daily cash margin calls by the London Liffe exchange in subsequent days as the price of wheat rises. That is, until such time as the position is squared, by buying back the paper future and selling the physical wheat. Those of us who have been in the trade long enough remember the old saying, ‘The market can stay irrational, longer than you can stay financially viable.’  Lack of cash will undoubtedly start to slow the market for some.

The market is factoring in huge amounts of risk, which is driving Chicago, Paris, and London Futures exchanges ever higher. Speculation surrounds not only Russian/Ukrainian fighting, but its impact on Black Sea port trade, the state of the Ukrainian wheat crop, World wheat supply, oil supplies, gas fertiliser prices and agchem supplies. The availability of these and the knock-on effect of demand for grains as animal feed, if the pig and poultry industries are decimated by these same very high cereal prices.

Agriculture and commodity prices are being driven by the unknown, and as the other old trading saying goes – ‘sell the rumour and buy the fact.’  If you have old crop grain in store and have not yet had a £300/tonne sell, what are you waiting for? If you have not sold a couple of loads of new crop, why not? With all things trade, it is about the average and risk management. The price bid now, may be more tomorrow, it may also be less. One thing is for certain, and that is, at some point in the future the unknown will be come the known, the rumour will become fact! At that point the Chicago, Paris, London trading screens will turn from green to red. The price of wheat will tumble, and we will all be wishing we had sold more, because the reality of what was going to happen was obvious. It always is with hindsight!